Mortgage Penalty Calculator 2026

Depending on whether you have a variable-rate or a fixed-rate mortgage, the lender uses different formulas to calculate your penalty. Variable-rate mortgage penalties usually require 3 months of interest payments, while fixed-rate mortgage penalties are calculated using Interest Rate Differential (IRD) and are often larger than variable-rate penalties if mortgage rates have significantly dropped since you obtained your mortgage.

For fixed-rate mortgages, lenders usually use the greater of three months of interest or an interest rate differential (IRD). Each lender has their own IRD calculation. The interest rate that they use for their IRD is usually based on either their current advertised mortgage rates or their posted rates, which can often be much higher.

Advertised Rate IRD	Posted Rate IRD
RBC TD Scotiabank CIBC BMO Peoples Bank Simplii Desjardins CMLS Equitable Bank*	Tangerine Manulife Alterna Savings First National MCAP DUCA

When does breaking your mortgage make sense despite the IRD penalty?

1. Debt Consolidation: If you have high-interest debt (credit cards at 20%, car loans at 8%), the interest savings from consolidating into your mortgage may outweigh the penalty
2. Accessing Equity: When you need funds for renovations, investments, or other purposes and the alternative (personal loans, HELOCs) would cost more
3. Lender Switching Incentives: Some lenders offer cash-back or will cover your penalty up to a certain amount to win your business
4. Life Changes: Selling your home, divorce, or other situations where the penalty is unavoidable
5. Near Renewal: The closer you are to your renewal date, the smaller the penalty becomes

Most lenders determine the mortgage break penalty for a variable rate mortgage by calculating three months of interest. The interest rate that they use can vary from lender to lender, but is usually either your current mortgage interest rate or the lender's prime rate.

Based On Your Mortgage Rate	Based On the Lender's Prime Rate
RBC TD Scotiabank BMO Equitable Bank First National Tangerine MCAP National Bank Desjardins CMLS DUCA Manulife Alterna Savings	CIBC Peoples Bank Simplii

Bank or Lender	Variable Rate Mortgage	Fixed Rate Mortgage
RBC	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
TD	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Scotiabank	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
CIBC	3 Months’ Interest (at the CIBC Prime rate)	Greater of 3 Months’ Interest (at your current mortgage rate) or the IRD amount IRD Definition
BMO	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Equitable Bank	3 to 5 Months’ Interest*	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Peoples Bank	3 Months’ Interest (at PBC’s Prime rate)	Greater of 3 Months’ Interest or the IRD amount IRD Definition
First National	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Tangerine	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Simplii	3 Months’ Interest based on the Simplii Prime Rate	Greater of 3 Months’ Interest or the IRD amount IRD Definition
MCAP	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Meridian	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Laurentian	Greater of 3 Month’s Interest based on your current annual mortgage rate or the current prime rate.	Greater of 3 Months’ Interest or the IRD amount IRD Definition
National Bank	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Desjardins	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
CMLS	Lesser of 3 Months’ Interest or, the remaining interest to be paid on your mortgage.	Greater of the IRD amount, and, the lesser of 3 Months’ Interest, or, the remaining interest to be paid on your mortgage. IRD Definition
DUCA	Greater of 3 Months’ Interest at DUCA’s current posted rate and the difference in interest payable due to the difference between the quoted posted rate when the mortgage was signed and DUCA’s current posted rate for a mortgage with a comparable term.	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Manulife	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Alterna Savings	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Canadian Western	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
First Ontario	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition
Investors Group	3 Months’ Interest	Greater of 3 Months’ Interest or the IRD amount IRD Definition

* Penalty for a Standard Equitable Bank Adjustable Rate Closed Term Mortgage is as follows:

• 5 months’ interest during the first year of your term.
• 4 months’ interest during the second year of your term.
• 3 months’ interest after the second year of your term.

Penalty for an EQB Evolution Suite Adjustable Rate Closed Term Mortgage is 3 months' interest.

⚠️ Important Note: The actual penalty calculation varies by lender and can be complex. Always request a penalty quote from your lender before making decisions. Some lenders may also limit how you can use your annual prepayment privileges before calculating the penalty.

Breaking a mortgage is often expensive, but some situations make financial sense to proceed with breaking the mortgage. The decision whether the penalty is worth it depends on the specific details, so the following list only provides examples and is not exhaustive:

1. The current interest rate on your mortgage is 4.2%, and you have 2-years left on your 5-year fixed rate before you have to renew. You do some research, and your bank is currently offering 3.1% on a 5-year fixed rate. Because of current events, you suspect that you won't be able to get this low rate a few years from now. You do the math, and it looks like you'll save more money in the long run if you switch now.
2. You have a variable-rate mortgage, and you notice the rates are as low as you have ever seen them. So, to lock in this new low rate, you decide to switch to a fixed-rate mortgage. Most variable rate mortgages in Canada allow you to convert to a fixed rate with the same lender without paying a penalty. This is typically a standard feature.
3. You have come into a large sum of money and want to use it to pay off $200,000 of your mortgage principal, but can't because this amount is much higher than what is allowed in your mortgage contract. Thus, you must break your mortgage agreement to proceed.
4. You cannot afford your current mortgage's monthly payments. The solution would be to get a new mortgage with a longer amortization period so the monthly payments are reduced. An amortization calculator can let you find out how much you can lower your mortgage payments by stretching out your amortization period.
5. You have accumulated a significant amount of credit card debt that is accruing interest at 19.99%. Your financial advisor strongly suggests consolidating your high-interest credit card debt into your mortgage by taking equity out of your home and refinancing.

If you decide to end your mortgage before the prescribed term is up, then you are "breaking" your mortgage contract. For example, if you are 3 years into your 5-year fixed-rate mortgage, and you find out that a lender is offering a significantly lower interest rate, then it is possible to break your mortgage early to sign a new mortgage with the discounted lender. But be aware, deciding to break your mortgage before the mortgage term ends is usually associated with penalties. However, some lenders may allow you to renew your mortgage early by a few months.

The major difference is the penalties associated with a closed-term mortgage. With an open-term mortgage, you can pay off the entire mortgage amount whenever you want. You still have to pay your principal and interest amounts every month, but you can make additional payments without having to pay a prepayment penalty (A penalty associated with a closed-term mortgage). This benefit is great, but most people usually opt for a closed-term mortgage agreement because an open-term mortgage usually has a significantly higher interest rate. Since most individuals don't plan on paying off their mortgage early, they decide to go for the lower closed-term rate.

That being said, a closed-term mortgage is one that you take out for a specified amount of time. In Canada, the most popular terms are usually about 3 to 5 years. As mentioned, the main difference with a closed-term mortgage is that you don't have the freedom to pay off your principal when you want. Some closed-term agreements allow you to pay off 10%-20% of principal once a year but outside of that, you will have to pay your lender a penalty fee for doing so.

If you are breaking your mortgage and staying with the same lender, then you do not have to worry about the stress test.

But whenever you apply for a mortgage with a new prime lender, you must pass the stress test again to ensure that you can afford your mortgage's monthly payments. The interest rate the lender will use is either your mortgage rate plus 2% or the floor of 5.25%, whichever is higher. If you don't pass, you will not be able to qualify for the new mortgage. This floor rate of 5.25% is subject to annual review by the Minister of Finance and the Office of the Superintendent of Financial Institutions.

It depends on your situation.

If you're trying to save money by pre-paying your mortgage or lowering your interest rate, then you should compare your potential savings to your mortgage pre-payment penalty. For fixed-rate mortgages, this penalty can be significant, especially if you still have a few years left on your mortgage.

If you are breaking your mortgage to refinance, then you should also consider other options such as HELOCs and second mortgages. They can let you borrow from the equity in your home without breaking your current mortgage.

According to paragraph 10 of the Interest Act, after five years from the date of advancing the mortgage, the most a lender can charge for breaking the mortgage is three months of interest in lieu of notice. Before five years, the Interest Act do not impose any limit, and your mortgage contract would determine the breaking penalty. Some mortgages do not allow breaking the mortgage except for a bona fide sale.